India’s 53 rank jump on Ease of Doing Business; here’s what we are still missing

Published: November 5, 2018 7:29 PM

Last year, the government eased FDI rules across various sectors for ease of investments, along with implementing GST and the Insolvency and Bankruptcy Code (IBC).

India made a sharp rise in the World Bank’s ‘Ease of Doing Business’ 2019 rankings.

By Richa Gupta & Umang Aggarwal

India made a sharp rise in the World Bank’s ‘Ease of Doing Business’ 2019 rankings. The report which ranks 190 countries on 10 parameters to measure their business environment, ranked India at 77th position, a jump of 23 paces over its 100th rank last year.

Cumulatively, India has made a significant improvement of 53 places in the last two years. For the second consecutive year, India became the top-ranked economy in South Asia and third among BRICs nations.

For the second consecutive year, India remains among the top economies in terms of making improvements in doing business. We believe that these gains are a direct result of the emphasis on digitization and promoting infrastructure development.

Amidst global uncertainty and foreign capital re-routing, the news may help India in regaining some of the lost ground with the investors. This steady increase in the rankings signifies and underlines the continual efforts by the government to ease business regulations which will then enable faster and efficacious operations for the businesses, making their experience in India closer towards the best of international standards.

It also helps that the state governments have also realized the importance of these rankings and there is healthy competition amongst states also to improve the operational ecosystem offered in their jurisdictions.

What led to the jump:

In this backdrop, this progress in overall ranking was driven by several reform measures the government undertook. Last year, the government eased FDI rules across various sectors for ease of investments, along with implementing GST and the Insolvency and Bankruptcy Code (IBC).

Apart from these reforms, the government had announced implementing investor-centric online single window model for faster clearances and compliances. The upgrade in ranking reflects these measures, and India has made maximum gains on indicators relating to “trading across borders” and “construction permits”.

Further, the fact that India made impressive strides in improvement in credit may indicate that it has become easier for small and medium enterprises (SMEs) to gain access to finance, an extension of inclusivity and improved credit cycle.

India’s growth is largely set in its strong macro-fundamentals and has definitely a strong domestic underpinning. As seems to have been validated by the rankings, this growth story has also been further supported by targeted reform actions.

What government should do:

The central government now aims to make it into top 50 by next year. This is achievable, given that China has already entered the elite club this year. To generate a similar business confidence, India will have to focus on parameters where it is stagnating or even falling behind.

It may be noted that India actually registered a decline on the indices – paying taxes, registering property, and Resolving insolvency. Surprisingly, this performance is for the year when both GST and Insolvency code were implemented. To improve on these parameters, India will have to consider bolder operational measures like complete and accurate digitisation of land records and simpler tax structure that incentivises payment of both income and consumption taxes.

What’s missing?

The ranking, however, does not consider some crucial business factors like level of productive employment, availability of requisite skill, macroeconomic and political stability, the strength of the financial systems, etc. for any country. However, these are arguably as relevant as the indices covered within this ranking, which governs the trust and confidence placed in any economy by businesses.

If India wants to gain the optimum benefit from its “demographic dividend”, creating a skilling environment that ultimately leads to micro-entrepreneurship and job creation are among top priorities.

Note that in terms of economic presence, India has already jumped places to become the world’s sixth largest in 2017 at USD 2.6 trillion. If the pace of reforms being implemented remains on track, and the business environment is further eased, we will be able to surpass the United Kingdom to become the fifth largest economy in the near future.

It is critical to undertake speedier and timely implementation of projects that in turn would generate a virtuous cycle of growing foreign as well a domestic private investment.

(Richa Gupta is senior director and senior economist and Umang Aggarwal is economist at Deloitte India. The views expressed are the authors’ own)